The most important of which is consumption. Consumption in the United States has been less than expected mainly due to low consumer confidence. Consumer confidence has hit a 10 year low with an index of 106.8 as reported by Alan Greenspan. In the past 2 months the index number has plummeted nearly 22 points, the biggest decrease since the 1990-1991 recession. The reason for this recent drop in consumer confidence is due to several key factors.
Spain has the 13th largest economy by nominal GDP in the world. It is the 5th largest economy in the European Union making it very important when referring to the global economy. The Spanish economy began to slow down in late 2007 and officially entered into a recession in 2008. GDP contracted by 3.7% in 2009, which ended a 16-year growth trend, and by 0.3% in 2010, however GDP expanded 0.4% in 2011, before again contracting by 1.4% in 2012. The economy again fell into recession as deleveraging in the private sector, fiscal consolidation, and a soaring unemployment rate (from 8% in 2007 to 26% in 2012.)
With credit harder to get, consumers have cut back on their spending, which is very bad for the economy since around 72% of economic activity comes from consumers (Gross 2). Retail sales dropped .4% in December, which is disturbing because usually December is the biggest month for retailers. Other factors that show the economy is slipping are that inflation was at 4.1% in December and has steadily been rising (Fox 3). In 2007, food prices rose almost 5% and gas prices rose almost 30% from the year before. Unemployment rates also went up above 5% this month, which is the highest they have been in over 2 years (Fox 3-4).
Unfilled orders fell .8%, marking a third-consecutive month of decline. Industries are softening up as durable goods orders fall below expectations, and it may continue to struggle if companies are reluctant to increase capital spending. There is growth nonetheless, but the rest of the year may yield below expected levels if the factory sector cannot recover. The US economic growth may be slowing as consumer spending slowed to a more moderate pace. According to the Commerce Department, the total value of goods and services slowed to 2.3% with a previous rate of 1.8% last year.
Because American citizens don’t have the money to spend they don’t spend and the consumer spending aspect of the economy takes a drastic downfall. Unemployment rates also have play in determining a recession (22). Proper money management and finances could bring an economy out of a recession. There are major flaws in the way we live that people are doing nothing to fix. Most people are in debt, in late 2005 “wage growth was shortchanged because 46 percent of the growth of total income in the corporate sector was distributed as corporate profits, far more than 20 percent in previous periods.”(24) Household income had fallen five years in a row and was 4 percent lower.
Every few years, countries experience an economic decline which is commonly referred to as a recession. In recent years the U.S. has been faced with overcoming the most devastating global economic hardships since the Great Depression. This period “a period of declining GDP, accompanied by lower real income and higher unemployment” has been referred to as the Great Recession (McConnell, 2012 p.G-30). This paper will cover the issues which led to the recession, discuss the strategies taken by the Government and Federal Reserve to alleviate the crisis, and look at the future outlook of the U.S. economy. By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession.
The unemployment rate increased from 4.9% in December 2007 to 9.5% in Jun 2009. The Dow Jones Industrial Average (DJIA) reached a peak of 14, 279.96 in October 2007 and then fell to 6, 440.08 in March 2009, a drop of almost 55% from the peak (Holt 2009). Most economic experts in America could agree that the primary cause of the current recession was the credit crisis evolving from the bursting of the housing bubble. Demyank and Van Hemert (2008) found that the value of subprime loans depreciated for six consecutive years before the crisis and that the problem could have been detected long before the crisis, but they were hidden by the rapidly rising home prices. The housing markets that had the largest home price increases were ordinarily markets where the local government enforced land restrictions that restricted the supply of land available for housing.
After the financial crisis of 2008 there has been a dramatic decrease of foreign direct investment (FDI) around the world. Particularly the rapid decline in inflows has affected the recovery speed of FDI around the world. Inflows into Europe contracted by 42% and to North America by 21%, inflows to Australia and New Zealand together declined by 14% 1. However there are few exceptions to the trend, such as the United Kingdom who have managed to keep its FDI attraction. UNCTAD has confirmed that FDI inflows into the UK have risen by 22% 2 over the past year.
Investments Moody’s Economy.com predicts a 1.1% drop in investment Gross Domestic Product (GDP), over a 2.9% drop in 2007. Given the recent sub-prime mortgage debacle and similar collaterized debt in the corporate market, the 1.1% drop is understated given the tightness in corporate lending and the government's short term stimulus package. The stock market dropped in tandem with recent events over the past few weeks including a one day 309 point drop in the Dow Jones Industrial Average. Non-Residential, Inventory Change, and Residential are the key indicators for the $1.8 Trillion annual business investment (15% of US GDP) and implications upon the economy. Nonresidential The Philadelphia Federal Reserve’s Business Outlook Survey for the month of January came in at -20.9, it’s lowest number since October 2001(median of 0 versus 50 for PMI) 1.
Impact on EU Governments The GFC caused a decrease in government revenues, but an increase in government expenditures in terms of GDP in 2008 and 2009, which significantly deteriorated deficits ... ... middle of paper ... ...wever, at the end of 2008, Germany was hit by the crisis through two channels; 1) Finance as many banks were overexposed to toxic speculative papers originating in the U.S and Ireland. Both private banks, such as Commerzbank and Hypo Real Estate, public banks had to be rescued by the government’s public guarantees costing €400 billion and 2) Export industry as the international demand decreased significantly . Although, the spending in the financial sector could harm Germany’s government debt in short-term, the debt was expected to maintain its position with low interest rates and capital gains from privatisation. With a strong financial position, Germany was expected a balanced budget, after spending on recovery plans. Though, Germany’s government debt to GDP kept rising since 2008 until 2011 from 64.9% to 82.5%, then decreased by 2.5% from 2011 to 2012 .